Note 4 - Loans

Loans, excluding loans held for sale, were comprised of the following:

	June 30,		December 31,
(in thousands)	2011		2010

Commercial	$	87,449	$	85,051
Commercial real estate:
Construction and land development		35,756		37,168
Commercial real estate		208,685		210,393
Residential real estate:
Residential		114,510		119,398
Home equity		61,218		61,064
Consumer		6,463		7,707
Total loans	$	514,081	$	520,781

The following is a summary of information pertaining to impaired and nonaccrual loans:

	June 30,		December 31,
(in thousands)	2011		2010

Impaired loans with a valuation allowance	$	-	$	-
Impaired loans without a valuation allowance		649		560
Total impaired loans	$	649	$	560

Allowance provided for impaired loans,
included in the allowance for loan losses	$	-	$	-

Nonaccrual loans excluded from the
impaired loan disclosure	$	2,815	$	2,037

	June 30,		December 31,
(in thousands)	2011		2010

Average balance in impaired loans	$	932	$	2,503

Interest income recognized on impaired loans	$	-	$	17

Interest income recognized on nonaccrual loans	$	-	$	-

Loans past due 90 days and still accruing interest	$	-	$	-

No additional funds are committed to be advanced in connection with impaired loans.

The following table shows an analysis by portfolio class of the Company's past due loans at June 30, 2011 and December 31, 2010. It is the operating policy of the Company that any loan past due 90 days will be transferred to nonaccrual loan status, therefore there are no loans reported in the 90 days and accruing column below.

At June 30, 2011					90 Days +
					Past Due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans

Commercial	$	1	$	4	$	-	$	160	$	165	$	87,284	$	87,449
Commercial real estate:
Construction and land development		-		-		-		729		729		35,027		35,756
Commercial real estate		5		-		-		218		223		208,462		208,685
Residential:
Residential		210		44		-		2,190		2,444		112,066		114,510
Home equity		17		-		-		44		61		61,157		61,218
Consumer:
Consumer		2		18		-		123		143		6,320		6,463
Total	$	235	$	66	$	-	$	3,464	$	3,765	$	510,316	$	514,081

At December 31, 2010					90 Days +
					Past due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans

Commercial	$	-	$	46	$	-	$	401	$	447	$	84,604	$	85,051
Commercial real estate:
Construction and land development		-		40		-		59		99		37,069		37,168
Commercial real estate		572		175		-		614		1,361		209,032		210,393
Residential:
Residential		742		704		-		1,419		2,865		116,533		119,398
Home equity		15		23		-		97		135		60,929		61,064
Consumer:
Consumer		8		72		-		7		87		7,620		7,707
Total	$	1,337	$	1,060	$	-	$	2,597	$	4,994	$	515,787	$	520,781

The following table presents the Company's impaired loan balances by portfolio class at June 30, 2011.

(in thousands)			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	96	$	-
Commercial real estate:
Construction and land development		354		366		-		532		-
Commercial real estate		-		-		-		-		-
Residential:
Residential		295		342		-		304		-
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-
With an related allowance recorded:
Commercial		-		-		-		-		-
Commercial real estate:
Construction and land development		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Residential:
Residential		-		-		-		-		-
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-
Total:
Commercial	$	-	$	-	$	-	$	96	$	-
Commercial real estate:
Construction and land development		354		366		-		532		-
Commercial real estate		-		-		-		-		-
Residential:
Residential		295		342		-		304		-
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-

The following table presents the Company's impaired loan balances by portfolio class at December 31, 2010.

(in thousands)			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	231	$	240	$	-	$	531	$	9
Commercial real estate:
Construction and land development		329		355		-		1,291		7
Commercial real estate		-		-		-		-		-
Residential:
Residential		-		-		-		681		1
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-
With an related allowance recorded:
Commercial		-		-		-		-		-
Commercial real estate:
Construction and land development		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Residential:
Residential		-		-		-		-		-
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-
Total:
Commercial	$	231	$	240	$	-	$	531	$	9
Commercial real estate:
Construction and land development		329		355		-		1,291		7
Commercial real estate		-		-		-		-		-
Residential:
Residential		-		-		-		681		1
Home equity		-		-		-		-		-
Consumer:
Consumer		-		-		-		-		-

The following table shows the Company's commercial loan portfolio broken down by internal risk grading.

Credit Quality Indicators
As of June 30, 2011
(in thousands)

Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade

			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity

Pass	$	86,618	$	30,585	$	201,331	$	101,200	$	59,814
Special Mention		595		2,281		7,349		8,643		1,117
Substandard		236		2,890		5		4,667		287
Doubtful		-		-		-		-		-
Total	$	87,449	$	35,756	$	208,685	$	114,510	$	61,218

Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity

	Consumer

Performing	$	6,210
Nonperforming		253
Total	$	6,463

Credit Quality Indicators
As of December 31, 2010
(dollars in thousands)

Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade

			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity

Pass	$	83,693	$	31,868	$	196,668	$	107,351	$	59,604
Special Mention		844		1,669		8,387		8,350		1,150
Substandard		514		3,631		5,338		3,697		310
Doubtful		-		-		-		-		-
Total	$	85,051	$	37,168	$	210,393	$	119,398	$	61,064

Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	7,423
Nonperforming		284
Total	$	7,707

Loans classified in the Pass category typically are fundamentally sound and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

Consumer loans are classified as performing or nonperforming. A loan is nonperforming when payments of interest and principal are past due 90 days or more; or payments are less than 90 days past due, but there are other good reasons to doubt that payment will be made in full.

Other real estate owned was $3,513,000 at June 30, 2011 and $3,716,000 December 31, 2010.